April 4, 2023
Nelson Neale, head of CHS global research, explains why high input costs could persist in the near term and offers suggestions for managing supply and price risk.
While farmers are welcoming somewhat lower fertilizer and diesel fuel prices for the start of the 2023 growing season, supply and price risk still remain. Nelson Neale, head of CHS global research, offers some tips for managing through the input market volatility.
High input costs likely to persist
Inflationary pressures and supply chain challenges have caused crop input costs to soar in recent years. Neale says the increase in fertilizer prices, which reached record highs last spring and summer, is the result of several geopolitical forces.
“Russia and China are large global fertilizer providers. The Russia-Ukraine conflict put fertilizer production and marketing at risk, and Europe backed off its fertilizer production to conserve natural gas and heating for the winter,” says Neale. “As China‘s COVID lockdowns persisted, fertilizer production declined there as well. Many of the supply and price challenges farmers are still struggling with have long tails.”
With ongoing inflationary pressures, Neale says he expects input price volatility to remain in the near term.
Focus on managing supply and margins
Neale says thoughtful planning can help manage risk and vulnerability to volatile markets.
“Focus not only on price, but also on product supply and availability. As the next crop cycle approaches, it’s imperative to weigh the pressures of both factors when making decisions,” he says.
Keeping a close eye on margins will be more important than ever this season as profitability gaps tighten, says Neale.
“If you look at input prices today and compare that with futures price for your crop, and there’s an opportunity to lock in some of that margin, do it. My advice to farmers is to focus on product availability to maximize the farm’s success and manage the margin to mitigate risk.”
Note: This article is part of a six-part series on the trends shaping the future of agriculture. Read other parts of the series:
- Outside market forces impact farm revenues
- The 5 latest trends in agriculture’s labor market
- Explore 3 technologies shaping agriculture’s future
- How shifting fuel demands are affecting crop production
- Will China and Brazil maintain global ag influence?
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